Mayor Greg Fischer warned of the potential of “devastating” cuts to city services and staff layoffs without new tax revenue on Thursday, citing an expected $65 million budget gap over the next four years due the increasing costs of covering pension obligations.
The mayor indicated that such cuts could result in up to 317 layoffs of staff across all city departments in the next fiscal year alone, along with closing library branches, fire stations, health clinics, community centers, pools and golf courses.
Fischer added the possibility of making the Louisville Zoo independently operated, eliminating Neighborhood Development Funds allocated by Metro Council members and external agency funds used to support local nonprofits and community service organizations.
“This list of cuts is long, and the impact would be devastating,” stated Fischer in a news release. “But we’re required to balance our budget, and without a major source of new revenue, this is what it will take to fill the gap created by the Frankfort-mandated pension obligation.”
City workers belong to the County Employees Retirement System, a pension plan that is housed within the Kentucky Retirement System, whose leadership dramatically changed the formula for pension payments to increase them for all plans in 2017.
Part of the reasoning for this change was the poor performance of one KRS plan for state workers that was underfunded by the state legislature for over a decade, though Louisville Metro Government and other local governments around the state have made full payments for local workers every year.
“It’s important to keep in mind that this pension situation is not something that Metro Council or I created,” stated Fischer. “It’s a challenge created by Frankfort’s years of inaction, exacerbated by the 2017 pension formula change.”
Fischer’s announcement stated that the city’s pension obligation is set to increase 12 percent increase each year through the 2023 fiscal year, growing to $97 million in 2020, from $86 million this year, and then up to $136 million by 2023. The budget situation in the coming fiscal year beginning July 1 is made more difficult with another $15 million gap due to increased health care costs and revenue shortfalls in the current fiscal year.
But when it comes to adding new revenue, the city is limited in what it can do by Frankfort. Fischer has long advocated for a constitutional amendment that would allow local cities to adopt their own local taxes to devote to specific projects, but such legislation has stalled in the General Assembly.
One revenue option that has been floated by the administration and council members is an increase to the insurance premium tax from its current 5 percent to 10 percent, which would have to be approved before the end of March to go into effect by July.
At the meeting of the Metro Council Democratic Caucus Thursday night, several members — including Councilwoman Jessica Green,D-1, and Councilman Bill Hollander, D-9 — said that car insurance premiums should be excluded from such a tax increase, as insurance rates are disproportionately higher in the West End where incomes are lower.
Green stated that she was blindsided by news of the budget crisis and the discussions about tax increases, but Hollander said that members and the administration have been very outspoken about the looming pension hikes over the past two years.
Fischer’s statement also called for citizens who find those potential cuts unacceptable to contact their council members, adding that he looks forward “to announcing a proposed resolution in the coming days to avoid these devastating cuts.”
“It would be foolish and short-sighted to drastically cut the services and people who got us here, especially as many of our peer competitor cities are investing even further in their communities.”